Electric power grids face several challenges. Variability and uncertainty in demand and supply can create a mismatch that causes a loss of efficiency, system failures, and wasted resources. This mismatch can arise from the variability and uncertainty that exists in present renewable energy production and in consumer demand. For example, solar and wind power generation are both weather dependent. While predictions can be made, there still remains a significant amount of uncertainty. On the other side, energy demand is also not fully known ahead of time as heating and cooling loads, for instance, are affected by weather or other events. As the share of renewable energy in the power grid grows, total energy generation and consumption become less predictable.
Furthermore, current trends point to an increase in decentralized production. Electricity generation may become more distributed and energy may be produced in smaller amounts at each generating unit. Consumers and businesses may add more solar panels at or near their point of use. In addition, power companies may add smaller, fast reacting, gas-powered turbines to react to fluctuating demand, and these turbines may be placed in distributed locations throughout the grid to help with demand.
Because the electric power grid can neither store, nor absorb or generate electric energy, a continuous balance between energy in- and outflow is required for reliable and safe operation. Without proper balancing, there can be a lack of energy supply at one time, or an oversupply at other time, leading to undesired deviations from nominal grid frequency and voltage, to grid congestion, and damage to power system equipment.
In the current electricity markets, only products to hedge against uncertainty of price, such as options and futures, exist. There are currently no products known that incorporate uncertainty of volume. Thus, no known products address the changes in supply of and demand for electricity.
Current methods for addressing these issues rely on grid-reinforcement, demand-response, and multi-stage markets. Grid-reinforcement includes upgrading transformers and power cables. However, while these measures are reliable they require additional infrastructure and, thus, are exceedingly costly and time-consuming. Demand-response programs, such as providing variable energy pricing, are simple, cheap, and distributed but are unreliable as the price elasticity of the energy consumers is unknown. Multi-stage electric energy and power markets are a known solution that is reliable. However, these approaches only work for controllable generation, are complex, have limited offerings, and are only available to transmission system operators. Furthermore, demand-response and multi-stage markets are reactive and unable to address problems until they occur.
There exist flexibility market prototypes such as iPower, PowerMatcher, and UFLEX. However, many of these market prototypes allow only restrictive flexibility products and do not consider inter-temporal constraints.
What is needed is a system that can match uncertainty with flexibility.